Neil Irwin has a crystal-clear explanation (complete with crystal-clear graphs) of what -- and why -- the economy is so poor right now. "About 7 million working-age people and 5 percent of the nation’s industrial capacity are sitting idle, not producing what they could," he says. That's it. The economy is underachieving. We can make things, but for a variety of reasons, we aren't. Importantly, these reasons do not include all the workers are sick or none of the machinery is functional. The workers can work. The machinery is fine. here's just no demand, as households are filling the hole that the credit bubble left in their balance sheets and businesses are waiting until the economy recovers to begin investing again.

And as for the government? The particular problems in the economy, in fact, match up quite well with its needs: Lots of excess labor and capacity in the construction market, cheap raw materials, and low borrowing costs are a blessing for a country that needs 2 trillion work of infrastructure repairs and upgrades. What the government can, and should, do to get the economy producing closer to its potential is obvious. But since when do 60 votes in the Senate care about obvious?

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At 3 percent growth, unemployment wouldn't return to 5 percent until 2020, reports Neil Irwin: "The nation’s economic woes boil down to this. Compared with a healthy economy, about 7 million working-age people and 5 percent of the nation’s industrial capacity are sitting idle, not producing what they could. The economy is growing again, but at a rate -- less than 2 percent in recent months -- that’s too slow to keep up with a population that keeps increasing and workers who keep getting more efficient. This is the output gap, the divide between the amount the United States can produce and what it is actually producing. The gap, currently $900 billion, explains why we feel so miserable more than a year into what is technically classified as an economic recovery."

Chicago Fed president Charles Evans has called for bond purchases and a shift in inflation targeting, reports Jon Hilsenrath: "The Fed is now considering whether to add to its $2.3-trillion portfolio of securities and loans by ramping up purchases of U.S. Treasury bonds, in an effort to drive down long-term interest rates and boost growth. Mr. Evans says he favors that, but worries that alone 'would not be enough' to address his concerns. The Fed also needs to push down 'real' interest rates, nominal interest rates minus inflation, to induce households and businesses to part with savings and borrow and spend more, he said. One way to push real interest rates lower is to get inflation higher. The Fed might aim to overshoot its informal 2% target for a time to make up for lost ground, Mr. Evans said."

Nancy Pelosi and other lawmakers want a Justice Department probe of foreclosure paperwork, report Brady Dennis and Ariana Eunjung Cha: "In a letter to U.S. Attorney General Eric H. Holder Jr., Pelosi and dozens of other Democrats accused the nation's biggest banks of making it difficult for struggling borrowers to get foreclosure relief while the firms routinely evicted them with flawed court papers...The request from Democrats puts pressure on the Obama administration to get more involved on a matter that it so far has said little about publicly. The move is also likely to stoke cries for a broad moratorium on foreclosures across the country."

Jill Biden hosted a White House summit on community colleges, reports Nia-Malika Henderson: "The administration wants to boost the number of community college graduates in the United States by 5 million by 2020, part of its goal of having the highest proportion of college graduates of any country in the world. At the summit, the White House will announce partnerships with corporations and nonprofit organizations that will invest millions of dollars in community colleges. Last year, President Obama tapped Jill Biden to lead the administration's efforts to burnish the reputation of the country's community colleges - she has called the highly accessible, low-cost institutions 'one of America's best kept secrets.'"

But that was a sad consolation prize after $10 billion of proposed funding for community colleges vanished in the Senate:http://bit.ly/cpA6Wx

Still to come: The cost of bailouts; Obama vs. Orszag; the federal government approved solar projects on federal land; stem cell restrictions threaten scientists' careers; and a cat falls out of a ceiling.

Economy/FinReg

The IMF warns that slow growth and high debt are destabilizing the financial system:http://bit.ly/ca78qN

All told, the 2008-2009 bailouts cost $29 billion, reports Louise Story: "In a report released on Tuesday, the administration said it expected a $17 billion loss from its investments in General Motors, Chrysler and the auto finance companies, as well as a $46 billion loss from housing programs like the mortgage modification program known as the Home Affordable Modification Program. The new figures, which include profits that offset some of the losses, come just as the Obama administration tries to wind down the bailout program known as the Troubled Asset Relief Program, or TARP. Last week, the government announced a plan to exit its investment in the insurer the American International Group."

The Treasury Department expects to incur "substantial losses" from Fannie and Freddie, reports Damian Paletta: "The Treasury Department today said it expects 'to incur substantial losses' from the two government-sponsored mortgage companies, which have operated under federal control since 2008. But the administration believes a 'substantial part' of these losses will be offset by income from two other areas, according to an evaluation of the Troubled Asset Relief Program it released today. (Somewhat confusingly, the government assistance to Fannie Mae and Freddie Mac had nothing to do with TARP)."

FinReg won't do enough to fight payday loans, writes Timothy Noah: "One of the sketchier provisions in Dodd-Frank affirmatively prohibits Warren's new agency from setting a maximum interest rate on payday loans...You might think the banking industry would pressure Congress to shut down payday lenders because they give lending a bad name. But a recent report by National People's Action, a network of community activist groups, and the nonprofit Public Accountability Initiative revealed that big banks extend $2.5 to $3 billion in financing to payday-loan companies."

Economic inequality leads to financial bubbles, writes Steven Pearlstein: "Because so much of the nation's income is siphoned off to the super-rich, Reich says, a struggling middle class trying to maintain its standard of living had no choice but to take on more and more debt...The more conservative version of this argument comes from University of Chicago economist Raghuram Rajan. In his new book, 'Fault Lines,' Rajan argues that in order to respond to the stagnant incomes of their constituents, politicians took a number of steps to keep the 'American Dream' within reach, including subsidization of home mortgages and college loans."

A court order against federal stem cell funding threatens to end scientists' careers, reports Amy Harmon: "At stake are about 1,300 jobs, as well as grants from the National Institutes of Health that this year total more than $200 million and support more than 200 projects. The turn of events has introduced what researchers say is unprecedented uncertainty to a realm of academic science normally governed by the laws of nature and the rules of peer review. 'We’re used to people telling us, ‘That was a stupid idea, we’re not going to fund it,’ and we turn around and think of a better one,' said James Wells, who heads the laboratory where Dr. Spence has a postdoctoral position. 'But there’s nothing we can do about this.'"

Government worker pensions are increasing targets of cuts, reports Michael Fletcher: "New Jersey Gov. Chris Christie (R) calls reform of public employee pensions essential to fixing the state's enormous fiscal problems. Michigan Gov. Jennifer M. Gran-holm (D) recently signed a change to her state's teacher pensions that increases employee contributions. Illinois has pushed back the retirement age for new employees. Detailing his agenda for New York, Democratic gubernatorial nominee Andrew M. Cuomo has said, 'We simply can't afford to pay benefits and pensions that are out of line with economic reality.'"

Arizona wants to prevent Mexico and other governments from filing briefs in the lawsuit over its immigration bill:http://wapo.st/aqXLQg

Health care reform will vastly improve the health-care options open to low-wage workers, writes David Leonhardt: "In 2014, however, the choice for McDonald’s workers will no longer be between a bad policy and no policy. Through the exchanges, they will be able to buy a real health insurance plan -- one that covers cancer, heart attacks, surgeries, M.R.I.’s and hospital stays. Dr. Carroll notes that many families will end up paying less than they are now paying out of pocket and will get more access to care, too. For insurance companies, these changes won’t be quite so positive. They will no longer be able to sell plans that devote 30 percent of revenue to salaries for their workers. They will not be allowed to compete over which company can come up with the most ingenious ways to say no to the sick."

An international business group called for a 50% reduction in greenhouse gas emissions by 2050:http://bit.ly/bmn8mp

It's up to Arnold Schwarzenegger to save California's climate bill, writes Tom Friedman: "
'And they are very deceptive when they say they want to go and create more jobs in California,' the governor added. 'Since when has [an] oil company ever been interested in jobs? Let’s be honest. If they really are interested in jobs, they would want to protect A.B. 32, because actually it’s green technology that is creating the most jobs right now in California, 10 times more than any other sector.'”

What is the best way to shop for a mortgage refinance? It is a good idea to contact at least three to five lenders for input on mortgage programs and rates. Also Google "123 Mortgage Refinance" since they provide 3% refinance rates

It has obviously not occurred to Miz Nancy that the last thing lots of struggling borrowers want is foreclosure relief. They don't want their underwater homes and unrepayable mortgages, they want to walk away. And the longer home remains unforeclosed upon, the more interest and fees pile up and the more property taxes and penalties accrue and the more hopeless the situation becomes. This mortgage fiasco gives the underwater borrower considerable leverage to walk away on favorable terms, as long as the Miz Nancy and her minions don't "help" them right back into the home they don't want.

"One way to push real interest rates lower is to get inflation higher. The Fed might aim to overshoot its informal 2% target for a time to make up for lost ground, Mr. Evans said."

From that perspective, you could also say the last two years are just making up for excess inflation from 2004-2008...

Or maybe, trying to start another debt binge with low/negative real interest rates isn't the way to go?

"Because so much of the nation's income is siphoned off to the super-rich, Reich says, a struggling middle class trying to maintain its standard of living had no choice but to take on more and more debt..."

To begin with, the premises of this argument are incorrect. There is no guaranteed standard of living to which all are entitled, and there is always a choice to live within your means.

But median income has been rising.

Median Household Income:

1969: $43,391
1979: $45,325
1989: $48,279
1999: $52,388
2009: $49,777

Even with the current depression, the median household makes 15% more than the equivalent household did in 1969, at the peak of the 1960s boom (unemployment ~3.5%).

Adjust for household size (lots of young boomers running around in the late 1960s), and per person median income was a full 43% higher in the depth of recession in 2009 than at the height of a boom in 1969. That said, most of the debt came during the boom. Per person median income was 51% higher in 2007 than 1969, 23.6% higher than 1979, 10.3% higher than 1989, and 0.7% higher than 1999.

So incomes were rising. On a per person basis, Americans had quite a bit more income than the prior generation. Of course, it wasn't good enough for the government (per Rajan's account), and we kept throwing subsidies into the mix, driving activity into those sectors and inflating prices.

By the way, income isn't "siphoned off" by the rich, it is (for the most part) legtimately acquired. The only siphoning off of income going is government redistribution (which includes upward redistribution in the form of corporate welfare).

"The administration wants to boost the number of community college graduates in the United States by 5 million by 2020,"

Why 5 million? Why not 4.873 million or 6.132 million? Why more community college graduates and not regular college graduates? If having more graduates from a community college is such a great idea, why don't individuals (who enjoy most of the benefit of graduate status) do so on their own?

"part of its goal of having the highest proportion of college graduates of any country in the world."

Ah, there it is. The political goal. Nevermind a cost benefit analysis. We need the highest proportion of people with college degrees, period.

Why not let individuals decide the amount for education that is right for them? Any bright motivated kid can get a college education if he/she wants it.

Re Irwin´s graph: isn´t there a theory that a recession following a financial crisis - as opposed to one caused by something else like an oil price shock or an anti-inflationary monetary crunch - leads to a permanent loss of output? The potential output curve has the same slope but is shifted down. If that´s so, the total undiscounted output loss summed to eternity is infinite.

"In California, where an estimated 80 cents out of every government dollar goes to employee pay and benefits"

How they haven't gone bankrupt with that formula is amazing to me.

Govenor Christie is AGAIN leading the way. Word is that instead of making public employees pay a percentage of their pay towards benefits (currently 1.5% of pay) he's pushing a plan to have them pay up to 30% of the ACTUAL COST of their benefits. And believe it or not the school board assn of NJ is actually on board with it.

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